Why the World Needs National Development Banks

By counteracting major shortcomings of the private financial sector, national and multilateral development banks play a crucial role in supporting economic growth. Countries that already have national development banks should aim to expand their role, while others should consider establishing them.

LONDON/BOGOTÁ – Support for national and multilateral development banks has grown worldwide in the decade since the global financial crisis. And the continued success of national development banks (NDBs), in particular, will be vital to achieve more sustainable economic growth in the future.

Development banks help to counteract the pro-cyclical nature of the private financial system, which lends too much in booms and rations credit during crises. The private sector also often fails to provide enough financing for small and innovative companies and infrastructure projects. Nor does it support enough of the investments in innovative activities, credit to small producers, and environmental projects that are urgently needed to make economies more dynamic, inclusive, and sustainable.

Although governments provide their paid-in capital, development banks raise funds on national and international capital markets. Moreover, these banks’ loans are typically co-financed by the private sector, which is especially helpful for governments facing budget constraints during and after economic crises.

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Stephany Griffith-Jones is Emeritus Fellow at the Institute of Development Studies at the University of Sussex and Financial Markets Director at the Initiative for Policy Dialogue at Columbia University.

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